4.5 Bond Market Trading & Bond Indexes

Canadian Securities Course CSC

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1 Introduction & Exam Overview

About the CSC Exams

2 Chapter 1: The Canadian Investment Marketplace

1.1 The Canadian Securities Industry & the Investment Dealer's Role 1.2 Financial Intermediaries: Banks, Trusts, Credit Unions, Insurers & Pension Funds 1.3 Financial Market Trends 1.4 Investment Capital, Financial Instruments & Financial Markets 1.5 Canadian Exchanges, ATSs, Dark Pools & the Order Protection Rule 1.6 Canadian Securities Regulators, the CSA & CIRO 1.7 Investor Protection: OSFI, CIPF and CDIC 1.8 Ethics, Standards of Conduct & the Client Focused Reforms 1.9 Conflicts of Interest, Complaint Handling & Remediation

3 Chapter 2: The Economy

2.1 Economics Foundations & Measuring Economic Growth 2.2 The Business Cycle & Economic Indicators 2.3 Inflation & Interest Rates 2.4 The Labour Market & Unemployment 2.5 The Bank of Canada & the Inflation-Control Target 2.6 Implementing Monetary Policy: The Operating Band, Market Operations & Transmission 2.7 Fiscal Policy, Deficits & the Challenges of Government Policy 2.8 International Finance & Trade: The Balance of Payments and the Canadian Dollar

4 Chapter 3: Features and Types of Fixed-Income Securities

3.1 The Fixed-Income Marketplace, Bond Terminology & Security 3.2 Protective Covenants, Retirement Provisions & Extendible/Retractable Features 3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs 3.4 Provincial & Municipal Debt and Strip Bonds 3.5 Corporate Bonds, Credit Spreads & Bond Ratings 3.6 Money Market Instruments, Floating-Rate Notes & International Bonds 3.7 Other Fixed-Income Securities & Reading Bond Quotes

5 Chapter 4: Pricing and Trading of Fixed-Income Securities

4.1 Bond Pricing, Price–Yield Relationships & Accrued Interest 4.2 Yield Calculations & Return Measures 4.3 The Term Structure of Interest Rates & Yield Curve Theories 4.4 Fundamental Bond Pricing Properties: Volatility Rules, Duration & Convexity 4.5 Bond Market Trading & Bond Indexes

6 Chapter 5: Common and Preferred Shares

5.1 Common Shares: Ownership Rights, Voting & Restricted Shares 5.2 Dividends, DRIPs, Stock Splits & Consolidations 5.3 Preferred Shares: Features, Cumulative Dividends & Taxation 5.4 Preferred Share Variations: Convertible, Callable, Retractable, Floating & Rate-Reset 5.5 Fundamental Equity Metrics & Ratios 5.6 Stock Indexes & Averages

7 Chapter 6: Equity Transactions

6.1 Order Types, Execution & Market Mechanics 6.2 Margin Trading: Long Accounts & Borrowing 6.3 Short Selling & Short-Margin Requirements 6.4 Trading & Settlement Procedures: T+1, CDS & Confirmations

8 Chapter 7: Derivatives

7.1 Derivatives: Role, Underlying Assets & Users 7.2 Options Fundamentals: Calls, Puts & Moneyness 7.3 Option Strategies & Risk Management 7.4 Forward & Futures Contracts 7.5 Rights & Warrants

9 Chapter 8: Corporations and their Financial Statements

8.1 Corporate Structures & Corporate Governance 8.2 The Annual Report, Accounting Standards & the Auditor's Report 8.3 The Balance Sheet & Income Statement 8.4 The Cash Flow Statement & Earnings Quality 8.5 Public Company Disclosure, Investor Rights, Take-Over Bids & Insider Trading

10 Chapter 9: Financing and Listing Securities

9.1 Government & Corporate Financing: Underwriting and Syndicates 9.2 The Prospectus Process, Stabilization & Purchaser Rights 9.3 The Exempt Market & Private Placements 9.4 The Listing Process: TSX, TSXV & Capital Pool Companies 9.5 Continuous Disclosure, Material Changes & Insider Reporting

11 Chapter 10: Investment Analysis

10.1 Methods of Equity Analysis & Macroeconomic Analysis 10.2 Fundamental Industry Analysis 10.3 Company Analysis: Competitive Advantages, Governance & the Dividend Discount Model 10.4 Discounted Cash Flow & Relative Valuation Multiples 10.5 Financial Statement Ratio Analysis 10.6 Assessing Preferred Share Investment Quality 10.7 Technical Analysis: Charts, Trends & Patterns 10.8 Technical Indicators, Volume, Breadth & Sentiment

12 Chapter 11: Portfolio Analysis

11.1 Measuring Investment Return 11.2 Measuring Risk: Types of Risk, Standard Deviation & Downside Measures 11.3 Portfolio Risk & Return: Correlation and Diversification 11.4 Beta, the Capital Asset Pricing Model & the Security Market Line 11.5 Portfolio Manager Styles: Equity & Fixed Income 11.6 The Portfolio Management Process: Objectives, Constraints & the IPS 11.7 Asset Mix, Monitoring, Performance Evaluation & Rebalancing

13 Chapter 12: Alternative Investments, Other Managed, and Structured Products

12.1 Alternative Investments: Structures, Fees & Liquid Alternatives 12.2 Alternative Strategies, Performance Measurement & Due Diligence 12.3 Segregated Funds, Labour-Sponsored Funds & Listed Private Equity 12.4 Income Trusts, REITs & Closed-End Funds 12.5 Structured Products: PPNs & Market-Linked GICs 12.6 Split Shares & Asset-Backed Securities

14 Chapter 13: Mutual Funds

13.1 Managed Products & Mutual Fund Structure 13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing 13.3 Mutual Fund Fees, Sales Charges & Unit Series 13.4 Mutual Fund Regulation, Fund Facts & Account Opening 13.5 Types of Mutual Funds & Fund Management Styles 13.6 Redemptions, Withdrawal Plans & Measuring Fund Performance

15 Chapter 14: Exchange-Traded Funds (ETFs)

14.1 ETF Origins, Structure, Tax Efficiency & ETF Facts 14.2 ETF Creation, Redemption & Arbitrage 14.3 Types of ETFs & Advanced Strategies 14.4 Comparing ETFs, Mutual Funds & Individual Securities

16 Chapter 15: Working with the Institutional Client

15.1 The Institutional Marketplace & Institutional Clients 15.2 Institutional Investment Guidelines, Styles & Restrictions 15.3 Buy Side & Sell Side: Trading Desks, Revenue, Clearing & Best Execution 15.4 Block Trading, Dark Pools & Algorithmic Trading

17 Chapter 16: Fee-Based Accounts and Working with the Retail Client

16.1 Fee-Based Accounts: Managed & Non-Managed Models 16.2 Fee Transparency, CRM2 & Total Cost Reporting, and MWRR vs. TWRR 16.3 The Financial Planning Approach & the Life Cycle 16.4 Behavioral Finance, Sequence-of-Returns Risk & Client Coaching 16.5 Estate Planning Basics

18 Chapter 17: Canadian Taxation

17.1 The Canadian Taxation System 17.2 Taxation of Investment Income 17.3 Capital Gains, Losses & The Superficial Loss Rule 17.4 Registered vs Non-Registered Tax-Advantaged Accounts 17.5 Tax Planning Strategies, Pension Plans & the RDSP

4.5 Bond Market Trading & Bond Indexes

Key Takeaways Explain This Topic AI

Canadian bonds trade over the counter: investment dealers act as principals, and inter-dealer brokers let dealers trade with each other anonymously.

A retail bond's price includes the dealer's markup in the spread, and CIRO requires dealers to charge fair and reasonable prices.

The repo market lets dealers finance bond inventories; CORRA, the main Canadian overnight benchmark, is based on overnight repo trades in Government of Canada securities.

The FTSE Canada Universe Bond Index measures the broad Canadian investment-grade bond market, with short, mid and long subindexes.

Bond indexes are total-return measures used to benchmark managers and to build index funds and ETFs.

Last updated: October 2026

Most investors never see a bond trade happen, because the bond market works very differently from the stock exchange. Understanding its structure explains bond pricing, dealer spreads and how bond performance is measured.

An Over-the-Counter Dealer Market

There is no central exchange for most bonds. Instead, investment dealers quote bid and ask prices and trade as principals , buying bonds into inventory and selling from it. The market has several layers:

Layer Who trades How

Dealer-to-client (institutional) Dealers and pension funds, insurers, asset managers Telephone, chat and electronic request-for-quote platforms such as CanDeal

Dealer-to-dealer Dealers trading with one another Through inter-dealer brokers (IDBs) , which keep the dealers' identities anonymous

Dealer-to-retail Dealers and individual investors Through advisors and online platforms, usually in smaller amounts

Inter-dealer brokers match dealers who want to buy and sell without revealing who they are, which helps dealers manage inventory without signalling their positions. IDBs act as agents and do not take positions themselves.

Retail Bond Pricing

When a retail client buys a bond, the dealer usually sells from inventory at a price that includes a markup rather than charging a separate commission. The markup appears in the price and yield the client receives. CIRO requires dealers to make reasonable efforts to ensure the price of a debt trade is fair and reasonable given market conditions, and trade confirmations must disclose that the dealer acted as principal. CIRO also publishes data on bond trades to improve transparency.

Retail investors should expect wider spreads on small trades and on less liquid issues, such as small corporate or municipal bonds, than institutions pay on large trades in benchmark government bonds.

The Repo Market and CORRA

Dealers finance their bond inventories in the repurchase (repo) market : they sell bonds with an agreement to buy them back the next day (or later) at a slightly higher price, which is effectively a secured loan. The Canadian Overnight Repo Rate Average (CORRA) , administered by the Bank of Canada, measures the cost of overnight general-collateral repos in Government of Canada securities. Since CDOR ended in 2024, CORRA has been the main Canadian reference rate for floating-rate notes, loans and derivatives.

Settlement and Accrued Interest

Most Canadian bond trades settle T+1 . The buyer pays the quoted (clean) price plus accrued interest from the last coupon date up to the settlement date, calculated on an actual/365 basis. Bonds in default trade flat , without accrued interest.

Liquidity Differences Across the Bond Market

Bond liquidity varies far more than stock liquidity:

Government of Canada benchmark bonds (the most recently issued bonds at key terms such as 2, 5, 10 and 30 years) trade in large volumes with very narrow spreads.

Provincial bonds of large provinces such as Ontario and Quebec are also actively traded.

Corporate and municipal bonds trade far less often. Many issues change hands only occasionally after they are first sold, and a dealer may have to search for a buyer or seller.

Less liquid bonds have wider bid-ask spreads and can be hard to sell quickly at a fair price, especially in a market crisis. For investors who may need to sell before maturity, liquidity should be part of bond selection, not an afterthought.

Who Buys Bonds

Institutional investors dominate the Canadian bond market. Pension funds and insurance companies buy long bonds to match long-term liabilities, banks hold government securities for liquidity, mutual funds and ETFs buy on behalf of retail investors, and foreign investors hold a significant share of Government of Canada bonds. Retail investors usually own bonds through funds or in modest direct holdings, often arranged as a ladder.

Bond Indexes

A bond index tracks the total return of a defined group of bonds, including both price changes and coupon income. In Canada the main family is the FTSE Canada bond indexes:

Index What it covers Typical use

FTSE Canada Universe Bond Index Broad investment-grade Canadian bonds (federal, provincial, municipal and corporate) with more than one year to maturity Benchmark for core Canadian bond funds

Short-term / Mid-term / Long-term subindexes Universe bonds maturing in 1 to 5, 5 to 10, and over 10 years Benchmarks for funds with those maturity ranges

Sector subindexes (federal, provincial, corporate) Universe bonds by issuer type Measuring credit and sector exposure

• FTSE Canada 91 Day T-Bill Index Three-month treasury bills Cash and money market benchmark
• Why Bond Indexes Matter

Benchmarking: a bond fund manager's performance is judged against the index that matches the fund's mandate.

Index investing: bond index funds and ETFs try to replicate an index, usually by sampling because the universe contains hundreds of bonds.

Risk measurement: the index's duration and credit mix show the risk of the market as a whole, so managers can see how far their portfolios deviate.

A manager who expects rates to fall might hold a portfolio with a longer duration than the Universe index; if rates do fall, the portfolio should outperform. Choosing the right benchmark matters: comparing a short-term bond fund with the Universe index would be unfair in a year when long bonds rallied.